Will the euro really keep rising? Can the dollar's current decline continue until the end of the year?

Recently, the performance of EUR/USD has been particularly eye-catching. Since December, the US dollar index has declined for 9 consecutive trading days, with the latest quote at 99.24, down 0.08%. Meanwhile, EUR/USD has also hit 8 consecutive gains, with the latest price at 1.1637. What is driving this wave of market movement?

Federal Reserve Rate Cut Expectations as the Main Catalyst

The market logic is actually simple—the Federal Reserve is expected to cut interest rates soon, which directly bearish impacts the dollar. According to the latest data from CME FedWatch Tool, the market’s probability of a 25 basis point rate cut in December has risen to 89.2%. Moreover, there are expectations of two more rate cuts in 2026, which can be seen as long-term pressure on the dollar.

December is the “Death Month” for the Dollar

Historically, December has never been a friendly month for the dollar. Looking back over the past 10 years, the USD index has declined in December in 8 of those years, with a probability of 80%. The average decline in those years is about 0.91%, and December is even called the most “unfriendly” month for the dollar throughout the year. Based on this logic, the dollar is expected to continue facing pressure this month.

Key Variables: Bank of Japan Rate Hike and Fed Chair Candidate

However, how deep the dollar can fall ultimately depends on two key factors. First is the action of the Bank of Japan—latest expectations show that the probability of the BOJ raising interest rates in December has risen to 80%, which will add additional pressure on the dollar. Second is the choice of the Fed Chair; U.S. President Trump recently revealed that he is considering appointing Chief Economic Advisor Harker to this position.

What Do Experts Say?

Van Luu, Global Forex Head at Russell Investments, believes that if Harker takes over the Fed, the Fed’s policy stance will lean more dovish, further weakening the dollar. Under this expectation, EUR/USD is expected to break through this year’s high of around 1.19, creating a new high in nearly four years.

Steven Barrow, G10 Strategy Head at Standard Bank, pointed out that multiple factors are forming a “perfect storm”—the Bank of Japan rate hike, Harker taking over the Fed, and the negative impact of tariff policies—all of which will pose a triple threat to the dollar. He stated that even if these changes do not materialize within the remaining weeks of 2024, they will definitely come to fruition by early 2026.

Deutsche Bank macro strategist Tim Baker provided a more specific forecast—he expects the dollar to retreat to the lows of the third quarter, which means the dollar index still has at least 2% downside potential.